April 5 (Bloomberg) -- Premier League head Richard Scudamore said the rule requiring bankrupt teams to pay off debts to rival clubs before other creditors is justified, despite a challenge from the U.K.’s tax agency.
The Football Creditors’ Rule is necessary to prevent one team’s financial problems from destabilizing the rest of the league, Scudamore said.
“We will defend it on the basis of the chaos that will ensue if we don’t have it,” Scudamore told a U.K. parliamentary inquiry into the governance of British soccer. “We are a closed system: we trade on a closed basis between each other.”
The Premier League is the sport’s richest domestic competition, generating annual revenue of about $3 billion. Scudamore’s comments come against the backdrop of a lawsuit filed by the U.K. tax authority, which says the rule on paying soccer creditors first is “unfair, unlawful and unacceptable.”
Portsmouth last year became the first Premier League team to seek bankruptcy protection after being unable to repay debts of 100 million pounds ($162 million) despite the sale of players. It repaid clubs including Tottenham, Chelsea, Watford and Inter Milan in full for player trades. The tax agency and suppliers, including a voluntary first aid organization, were forced to accept a deal for 20 percent of the money they were owed. Scudamore admitted that it was difficult to defend the “moral” basis of the regulation.
Though the fairest option would be to expel clubs that get into difficulty by overspending, it wouldn’t be possible in the context of a closed soccer competition, he said. Clubs spend millions of pounds buying players, with most involving payments spread over several years.
“If a business fails the real sanction should be expulsion,” he said. “The problem with expulsion is it damages far more than just the club involved.”
If Portsmouth had been expelled midseason, the league would have needed to take points back from the teams that had beaten them and clubs that hadn’t beaten Pompey would “suddenly have a three-point advantage,” he said. “So it’s absolutely essential that the clubs are forced to play each other and play out their fixture lists.”
Manchester United Chief Executive Officer David Gill last month told the same inquiry that the rule had outlived its utility and said there would be greater transparency if it was scrapped. He suggested without it, clubs would be forced to investigate rivals’ ability to pay for player trades before deals were signed.
Scudamore said the buying and selling of players is the most popular aspect of the sport among supporters and cautioned against regulations that might interfere with the process.
“The idea you would put an administrative blockage of a due diligence, it’s a place we just wouldn’t want to go.”
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